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A Guide to 401(k) Calculator

It can be hard to stay on top of your retirement plan, and harder still to know exactly where you’ll be five, ten, or twenty years down the line.  Most Americans find themselves falling short of a manageable income when they hit retirement age, and bad planning can be a major factor in that eventuality.  If you want to know what you can expect from your 401(k) plan down the line, you’ll want to make use of a calculator that can give you a clear idea of what that is.  Let’s think about why you should keep an eye on it, what you should watch out for, and what you’ll need to get started.

Benefits

Staying apprised of your 401(k) contributions is important for your financial planning, even if you’re a long way from retirement.  You can get an idea of what more you’ll need to do to maintain your standard of living when you’re no longer working.

If you’re close to retirement age, your financial strategy will be changing soon, and it’ll be important to know what your contributions over the years have netted you.  So get out your files and use this simple tool for understanding what your fiscal life will look like down the line.

Pitfalls

A 401(k) calculator tool is just that – a tool.  It’s not authoritative, and shouldn’t be taken that way.  It’s just a quick and easy way of getting a general idea of what you can expect.  Make sure not to rely on it too much, and use the information it gives you with a sense of moderation.

Getting Started

There are many free online tools that will allow you to compute an approximate value of your 401k return by entering a few relevant pieces of information.  You’ll want to have that handy before you get started.  (Remember, some tools are more precise than others and will ask for more information – the more you have to give, the more accurate the result will be.)

At a minimum, you’ll want to have your current 401(k) balance, your annual salary, your expected salary increases, the percentage of your salary withheld for 401(k), the employer match percentage, and the average annual interest rate earned.  You should be able to find this information from pay stubs and tax returns, but if you need help, try consulting the accountant or payroll company that handles your benefits.

If you’d like more precision, you may want to employ your own accountant or use more advanced software like 401(k) Pro Inc. or Torrid Technologies.  Compare the software options available to you at ShareBuilder.  Ultimately, it all depends on the complexity of your financial portfolio, so if you have a variety of investments or salaries that can’t be easily computed, consider using these more robust solutions.

Conclusion

Planning for your retirement is a long and sometimes difficult journey towards financial security and independence.  That kind of strategy starts with knowing the facts, and a 401(k) calculator is a good way to find them.  Just make sure you’re choosing one that’s right for your needs, and remember that knowing is just the beginning.